Financial recovery in the energy industry is going to take a very long time, given that $226 billion — or more than 90% of market capitalization — was lost by the dozen major energy trading and power generation firms, a Nymex executive on Tuesday told a national meeting of state regulators in Portland, OR.

The mass exit from trading by many of these companies has “dried up liquidity and capital markets,” said Mark Seetin, Nymex’s vice president, government affairs. “This is a very, very serious problem.”

According to Nymex’s tracking and analysis, the market capitalization loss has grown by $48 billion just in the past four weeks, Seetin said. Nymex has charted the downturn among the dozen companies since May 1, 2001, which was close to the peak in the energy firms’ market capitalization.

“It is not a very encouraging picture in the energy market today, he said, adding that some analyses in the post-Enron bankruptcy case estimate that perhaps as much as 50% of the trades on EnronOnline were so-called “wash” trades.

As a result, the market appears to have “taken its wrath uniformly” against many of the industry’s major energy traders. Accelerated credit rating downgrades have followed, and a Nymex analysis has concluded that a large chunk of existing generating capacity in major eastern and western markets has been severely impacted by these downgrades. Between 20% and 50% of the generation is operated by companies with “junk” level credit ratings.

California generation capacity has been hit the hardest, with more than half of its owner/operators in the “junk” class, Seetin said, followed by 38% of the generation capacity in NEPOOL (New England Power Pool) and 21% in the New York state.

“Raters are reacting to the heat from the general public and investors,” Seetin said. “We at Nymex were stunned recently by the four-class downgrade on The Williams Companies. Many of these companies (that have drastically lost market capitalization) had very strong trading operations, but that is inherently a risky business (compared to their traditional, core operations).

He noted that the market has to start asking where the capital for just maintaining existing power plants is going to come from — let alone building new generation capacity — in light of the severe credit-rating cuts.

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